The Political Impact
By the time we reach a hard Brexit we would already have likely experienced a number of political upheavals, as parties were shaken up and the pressure for another election increased.
You’d have inflation. Prices in shops could easily go up by 5% because of tariffs on food imports. This doesn’t seem like much, but it is quite a lot if your income is only going up by 1.8% and for people who are on very low incomes and haven’t got any spare money anyway.
This would lead to real acrimony between the EU and Britain, and probably the fall of the UK government. This in turn, might lead to a strange period of isolation for Britain in the West. The Brits have always been ambivalent about the EU. If they crash out, generating all sorts of weird costs for everyone, they will be persona non grata for a while. But all the relevant players are democracies, so there will be no violence or repression.
The EU referendum was held in 2016. After an emotional campaign from both sides, which split political parties as well as the general public, Leave won with 51.89% of the vote. Then Prime Minister David Cameron resigned, leaving his successor, the then-home secretary Theresa May, to take charge of Brexit negotiations.
The Economic Impact
A crash out of the EU would have a distinct impact first on confidence – business, investor, consumer – which would act as a self-fulfilling outcome for economic pain. Loss of the trade and financial benefits of the single market would have large ramifications for years down the line.
If there is no deal, we would likely see more inflation and an economic shock, but it may not unfold overnight. I can’t really imagine planes stopping flying or suddenly lorries waiting hours to cross the channel – but overall growth, already the slowest in the Organisation for Economic Co-operation and Development post-2017, would take a further hit and it is possible growth would go negative. Whether any of this leads to a change in sentiment about Brexit is not clear, but there will be less disposable income and likely rising anxiety about the future, and Remain voters will feel even more agitated and pessimistic. In farming, we might get machines picking crops instead of people. If Brits aren’t willing to do it for £7.50 an hour, and you decide that you can still sell your product, then you may invest in machines to make burgers, serve coffee or pick vegetables. But it’s usually cheaper to employ people.
Financial chaos first, as the pound falls to reflect the weird limbo state of Britain. The medium term will almost certainly see low growth or a slump in Britain as firms relocate to the Continent and foreign investors stop using Britain as an English-speaking springboard for the EU. This sort of outcome is already predicted anyway, but crashing out will make it even worse.
The Financial Impact
Sterling would drop sharply. However, this would not be a surprise turn of events. It would become clear with each day that passes without a sound negotiation, that calamity will come closer and closer. There is a deadline well before the final date agreed by the UK and EU, whereby the latter feels they have enough time to consider the British proposals thoroughly and bring it to a vote. Furthermore, the loss of access to the single market – and with no comparable, alternative deal in place – will mean a significant diversion of capital from and through Europe into the UK. That translates to far less global bid for the pound. More likely than not, we would have a robust sterling bear trend develop for months before the Brexit Day.
There would be a drop in the pound. Currencies tend to reflect nation’s well-being as a whole, and the market will strongly reject a crashing Brexit. Then will come the capital flight. This, to my mind, is the bigger question: just how much business will flee, or not come to Britain, due to Brexit? It’s not hard to predict that the more erratic and disorganised Brexit is, the worse the capital flight will be.
What’s interesting, when asking people ‘what should be top of your list of priorities when negotiating with Europeans?', is they continually say immigration. Even though the majority of immigration comes from outside of the EU, it’s still the top of their list of priorities. People are unlikely to change their mind.
This would lead to the dislocation of EU nationals living in Britain. Their rights are guaranteed by the EU. Suddenly they would be in some weird limbo the world has never really seen before. Some of them might lose property. Families might be divided.
Finger pointing would increase significantly amid a clear economic and legal immigration fallout.